Hitachi's (HTHIY) CEO Q1 2017 Results - Earnings Call Transcript

| About: Hitachi Ltd. (HTHIY)

Hitachi Ltd. ADR (OTCPK:HTHIY) Q1 2017 Earnings Conference Call July 29, 2016 4:00 AM ET

Executives

Mitsuaki Nishiyama - SVP, Executive Officer & CFO

Mitsuyoshi Toyoshima - General Manager, Financial Strategy Division

Ken Mizoguchi - Executive General Manager, Corporate Brand and Communications Division

Analysts

Operator

We would like to start the fiscal 2016 Hitachi Financial Results briefing for the First Quarter end of June 30, 2016. Speaker today are first, Mitsuaki Nishiyama, Senior Vice President, Executive Officer and CFO; and General Manager of Financial Strategy Division, Mitsuyoshi Toyoshima, Executive General Manager of Corporate Brand and Communications Division, Ken Mizoguchi. They are the speakers today. First for the overview of the financial results I would like to ask Mr. Nishiyama to give a presentation.

Mitsuaki Nishiyama

Please take a look at the material entitled, the outline of consolidated financial results for the first quarter ended June 30, 2016. Please go to page 5, slide 1-2, Consolidated P&L. First quarter financial results there are a number of the organization of business portfolio and that impact has been reflected as well as foreign exchange, a stronger yen impact they have been reflected in our results. If you look at the revenues at the Top 2.134 trillion, it's down by 183.5 billion year-on-year, it's down 8% from the previous year.

Adjusted operating income is at 91.4 billion which is down by 23.9 billion year on year, again portfolio change its impact is felt here as well as a stronger yen impact is being felt here in this number. EBIT is 112.4 billion compared to the year before it's down by 33.9 billion. If you go to the bottom, net income attributable to Hitachi Limited stockholders, net income is 56.4 billion, it's up by 3% a small increase from the previous year and an increase of 1.4 billion.

Going to the next page, macro-revenue as well as operating income change and the factors affecting those changes the left hand side is revenues. The lower pointing arrows at the far left exchange impact was 120 billion which was a downward impact and impact of reorganization of Hitachi Transport systems was 74 billion and the impact of the organization of air conditioning business was 61 billion.

Excluding these items 71.4 billion increases did exist and if you look at the adjusted operating income waterfall, exchange loss impact was a negative impact of 15 billion. Furthermore, reorganization of Hitachi transport systems had an impact of 3 billion negative and an impact of reorganization of airconditioning business was a negative 7 billion and others was 1.1 billion.

Cost related matters, 1.1 billion this number has a number of components inside. Let me just highlight some of the major ones. Cost reduction, direct materials cost reduction as well as indirect expenses reduction such cost reductions there was a total of 36 billion and restructuring effect was 9 billion put together 45 billion of cost reduction benefit was achieved by downward declines of selling prices was 25 billion so on a net basis 20 billion was the amount of cost reduction savings.

From here on business development investments as well as human resources, labor cost increases for the front line resources such as advance investments have been covered by this savings from cost reductions.

Going to be page 7, slide 1-4, revenues by market. The top one is Japan compared to the year before its 94% year-on-year because of a stronger yen as well as reorganization of the business portfolio. If you exclude those impacts it was 99% year-on-year. Outside of Japan line two, they accounted for 51% of the total, if you exclude the foreign exchange impact the ratio would come to 53%, year-on-year it's 91% exchange as with reorganization of the portfolio if you exclude those impacts then it's 103% year-on-year but China in the middle as well as ASEAN, India and other areas if you look at those rows compared to the year before, China is 81%, ASEAN, and India and other areas 77% year-on-year. So there are declines in these areas.

Building systems by functional materials, China and ASEAN demand is declining in these places so that has had an impact. Even excluding foreign exchange impact it's 97% for China and ASEAN and others 99% so there are still declines. Europe is 125% year-on-year and so those acquisition is being reflected in these numbers. So there are increases in Europe.

Going to the next page, now page 8, below is the cash flow summary and the last row is a free cash flow and right hand side for the first quarter. On a consolidated basis is 3.5 million and compared to the first quarter 2015 is 28.5 million and therefore it has improved accordingly. In terms of the manufacturing services, free cash flow was 13.2 billion for the first quarter, year-on-year improvement of 80 billion was achieved.

Next total assets, please refer to page 9, 1-6. Total assets was 8.9895 trillion and this is -- the change was negative 928.3 billion. The second line from the bottom, the total Hitachi Limited stockholders equity ratio was 26.8%, 1.2 increase over the previous year and the ratio has increased to 0.38 times. In terms of the CCC cash conversion cycle was 61 days compared to the end of month improvement of 10.6 days was achieved. However here the Hitachi Transport system is also included. So the actual spend is 65 days and even with 65 days. This is a marked improvement from the previous year.

Page 10, and 11, 1-7 and 1-8. I would like to highlight the major business segments. Now in terms of segments for information telecommunication systems, other than this segment because we had the business of [indiscernible] reorganization and because of the impact of overseas currency after in translation has had an impact therefore in most of the segments there was decline in earnings. For information telecommunication systems revenues was at the level of 96% and adjusted operating income was increased by ¥3.2 billion. This is the result of this business [indiscernible] reforms having an impact.

Next for social infrastructure and industrial systems and revenues increased to 111% because of the Ansaldo acquisition. Adjusted operating income was minus 6.2 billion. There was a deterioration about 4 billion impact was from a foreign exchange and because of business development investment as well as building demand decreased in China having an impact that is a reason why there was a deterioration of 6.2 billion year-on-year in terms of this segment. Regarding EBIT on the other hand, the decline in the operating income year-on-year and the impact of appreciation of the yen and non-operating basis 5 billion has been added and the equity method [indiscernible and that is the reason why there was a decline of EBIT of ¥14.7 billion.

Electronic systems and equipment Kokusai Electric deteriorated, Hitachi Kokusai Electric deteriorated and in terms of construction machinery of foreign exchange impact was significant for China and civilization as well as North America for high function materials and components electronics automotive demand declined leading to the decreasing profit. For high functional EBIT declined by 38.9 billion, this is because the [indiscernible] engineering interest was sold by Hitachi Metals and there is an absence of gains in this year.

Next page is the automotive systems, phone exchange has an impact significantly declined of 3.5 billion, Smart Life and Eco-Friendly systems revenues has declined to 69% because of the reorganization of the airconditioning business, and because of this the decrease in profit is a result of reorganization as well and revenues was around 70% year-on-year. This is because of Hitachi Transport reorganization is included.

For corporations and [indiscernible] EBIT was 54 billion, our increase by 54 billion year-on-year and this is because of the proceeds from the sales of Hitachi Transport. Regarding foreign exchange impact was significant for most of the segments and if we take away the foreign exchange impact as well as reorganization impact, the actual deterioration was seen in terms of social infrastructure as well as electronic systems and equipment, otherwise for profit was at similar level compared to the previous year.

Please now refer to page 13, 2-1, and this is the outlook for the fiscal year 2016. The macroeconomic business environment for each of the regions are subject to opaqueness and foreign exchange volatility is likely to continue growing forward against this backdrop for fiscal year 2016 we have maintained the previous forecast of 13th of May, by segment basis Hitachi Construction machinery declined and Hitachi Capital closing has been extended and these are having an impact on the forecast.

For the second quarter, results when we announce foreign exchange trends will be taken into consideration and business trends will also assessed and we will consider at that time whether we need to revise or not. Now regarding exposure of foreign exchange from July onward please refer to page 24.

Foreign exchange sensitivity is provided on the right hand side. For the nine months from second quarter regard operating income basis ¥1 U.S. dollar movement will have an impact of the ¥2.5 billion and for Europe, €1 change will have an impact of ¥1 billion. On the May 13th, when we announced the forecast, the assumption for dollar exchange rate was ¥1.10 [ph] and so within ¥5 volatility we should be able to absorb the changes according to plan. However if it goes to ¥100 in terms of business profitability, we have to reconsider how much we can absorb the changes in foreign exchange volatility.

Now let me confirm, on page 14, 15, let me talk about where there has been changes. The fourth from the top is construction machinery, it was 720 billion has been changed to 700 -- revised to 700 billion and 34 billion has been changed to 26 billion. EBIT is 16 billion, we had announced 25 billion, that is a revised downward to 16 billion.

Now for financial services, the original forecast was 130 billion but adding 90 billion to that we have revised to 220 billion, a three months closing has being delayed for Hitachi Capital Corporation. So three months of revenue has been added in terms of operating income was 15 billion added to 11 billion to 26 billion. EBIT, the original focus was 16 billion that has been revised to 28 billion. In terms of corporate taxes and elimination, the remaining 3 billion has been adjusted.

The 3 billion EBIT for operating income as EBIT the 3 billion adjustment as we made and overall we have maintained the previous forecast. Lastly, I would like you to refer to page 17, there are two topics I would like to elaborate on, it's 3-1 in terms of your slides. First of all regarding the status of the business portfolio in form we have converted Hitachi Transport system to an equity method, so see it on May 19th, this has being completed. The second point is regarding the moment of the date of transfer of the shares of Hitachi Capital Corporation has been extended to October 2016 rather than the original plan of August because of permissions and approvals that need to be added and we have added three months into the numbers.

The second point is regarding the status of the business in the UK in terms of revenues for the first quarter was simply ¥73.6 billion revenue composition ratio was 3%. In terms of the scale of revenues as well as the demand substance, it seems that the direct impact on the decision of the U.K. to leave the EU on the Hitachi Group business in the UK, Europe is minor. Major business is twofold, rail business and the nuclear energy business. Hitachi will utilize the manufacturing base in the UK to cope with the UK domestic demand and bases of Hitachi Rail Italy and Ansaldo STS in the European continent for other European demands.

For the nuclear energy business there is no change in our plan, ABWR, the process for we have to design approval is schedule for the end of 2017 and the construction of the first plant is planned to start in 2019 that is all in terms of my explanation.

Question-and-Answer Session

Q - Unidentified Analyst

There are two questions, by segment, operating income by segment. You gave an explanation and I was able to get a general understanding but foreign exchange impact excluding that what is the actual amount of operating income if you could share that number with me, if it's going up or down. Mostly it was flat I understand, but when I did my calculation there are certain things that I found not to be flat. So maybe I'm mistaken if you could elaborate.

Another question about cash flows, cash flows from investing activities there is what's such cash flows in the previous year as well as this year excluding cash flows from sales of business, what is the free cash flow in the first quarter coming from your actual business? For the full year, what is the projection for the full year in terms of the cash flows? What is your prospect/ And M&A cash flows to be used for M&A purposes, are you allowing for some answer?

Mitsuaki Nishiyama

Now let me start with the free cash flows. First quarter free cash flows was 113.2 billion. Reorganization of Hitachi Transport, the shares of Hitach Transport being transferred, the impact is about 44 billion or so. The proceeds from the transfer and this is a net number for carving this out and on the net basis 44 billion is reflected in this number and for the full year free cash flow projections for the full year May 13, 100 billion or so is the number that we wanted to aim at. This is something that we shared with you before. So far 100 billion to 150 billion we want to raise it to that level because on a run rate basis CTC improvements are being observed. So cash conversion cycle if it is improved further we want to be aiming at 150 billion.

M&A, we haven't included large ones yet but small ones, there are certain ones that are already decided. Establishing companies and M&A transaction smaller ones have been included. So in terms of cash flows from investing activities in a three year period cash flows from operating activities 2 trillion over a three year period and CapEx 1 trillion expenditure M&A expenditure of 1 trillion that policy remains unchanged but when it comes to M&A it depends on a deal and at every juncture we have to move in-line with our strategy whether deals that suit our strategy will be coming up or not would be determinant factors. So we don't have a specific number, it is difficult to post a specific number for each year. So we’re thinking over a period of three years and that the policy remains unchanged.

Unidentified Company Representative

Mr. Nishiyama explained the impact of the foreign exchange as well as reform of the portal portfolio. Hitachi Transport and airconditioning put together and Ansaldo and Hitachi construction machinery Metabo, after restatement of these four pieces let me explain first, in the information telecommunications systems revenues it's 96% year over year. So this is flat at 100% without those factors. Now adjusted operating income positive 32 is the number we have here, there are positive sides because of many buys so positive -- it's not plus 32 but it's down by about 10 to plus 22 foreign exchange being constant. So what we’re saying question is that for a one off items and foreign exchange when they are reversed what would happen? So 0% of revenues this is after foreign exchange being reversed.

That is correct. So information telecommunications systems plus 10 billion and social infrastructure after excluding Ansaldo it's 101, and social infrastructure minus 6.2 billion. Well foreign exchange translation UK rail that's where the Chinese elevators related, there is a lot of foreign exchange translation impact so this 6.2 billion is about minus 3 billion as Mr. Nishiyama said, social infrastructure and electronic systems are having negative declines in profit. Revenues in an electronic systems is about 10 billion. So this 2 billion or so, so the impact itself is not that large, construction machinery 101 in revenue year-on-year and adjusted operating income minus 2.8 would come to about positive 1 billion.

High functional materials, this is 87% should be become both [ph] metals. Materials declines are reflected in selling prices. So 87 would come to 92% revenues. So I adjusted operating income is minus 3.7 would come to a positive 200 million or 300 million, automotive systems against 97, it would to 104%. Income minus 35 would come to minus 2 or 3. So it's almost flat but domestic is rather weak this automotive systems. Smart Life and Eco-Friendly revenues of 101% and operating income plus minus zero mostly, others 70% would become 96% in revenue year-on-year and operating income minus 3.8 would become plus 200 million or so. Financial services revenue was 105% and operating income is plus minus zero or so. As a result after restatement of the nine segments, six segments would have higher revenues. Declines in profits, well what you need to pay attention to is social infrastructure in industrial systems and electronic systems and equipment that's our understanding mainly Kokusai.

Unidentified Analyst

Free cash flows, 100 billion to 150 billion is the target you said, now first quarter actuals, onetime factors included, free cash flows of 100 billion including that you want to raise it to 150 billion for the year that's right.

Mitsuaki Nishiyama

In addition in the first quarter when we plan this compared to the time that we planned this CCC compared to the initial plan there has been a large improvement. So on the four year basis we want to factor in this improvement. So that's why we're saying we want to increase our free cash flows by about 50 billion from 100 billion to 150 billion mostly coming from CCC improvements.

Unidentified Analyst

I just have one question and there's going to be overlap with what you have already explained and on page 10 and 11, in the first quarter regarding the actual results for operating income. Once again I'd like to ask, what is the achievement against the original plan internally and by business please talk about outperformer or underperform, are there any characteristics, noteworthy characteristics you can share with us and then based on for the annual guidance which segments are doing well and which are subject to challenges inclusive of the macroeconomic environment. Please elaborate further.

Mitsuaki Nishiyama

Now in terms of operating income basis against the plan, there's about improvement of ¥10 billion, that's our view and in this foreign exchange impact compared to when we had the original forecast for all the currencies, there's been minus 5 billion impact was felt but that is being absorbed in the 10 billion that I have mentioned. Now the breakdown of 10 billion by segment there was good performance in information telecommunication system around 8 billion is accounted for compared to the original focused they did better in terms of the first quarter.

Electronic system and equipment is 7 billion. As you know very well Hitachi High-Technologies did well in the first quarter. Now the challenging segments in terms of original plan is 3 billion was for high function materials and components and automotive systems compared to original plan because of the domestic demand declined. They have also being subject to a challenge. So when compared to the original plan deviation was 2 billion, overall 10 billion, improvement has being achieved, it is seen.

Regarding the outlook going forward, the segments had struggled likely to continue to be difficult in terms of high function materials components as well as automated system, their market environment as well as foreign exchange will have a significant impact on these segments. Taken into consideration the current foreign exchange it could be difficult for the full year as well.

Now regarding the information telecommunications system as well as high technologies we believe that the strong performance will continue, but there is a significant volatile in foreign exchange therefore in the second until we announce the second quarter guidance we have to reconfirm and reevaluate each of the businesses in segments and also revisit the foreign exchange assumptions and we have to also consider how much volatility can be absorbed or if it is possible that will be considered going forward. Thank you.

Unidentified Analyst

I have a number of questions, the first one is last year in information and telecommunications systems as for the social infrastructure you did a lot of restructuring in these areas. Now in this year structural reform last year in terms of telecommunications infrastructure there are some that are still continuing but right now what is the status of progress as from your standpoint going forward? How do you look at it? When you think about structural reform of your business can you give us your update that’s my first question.

Mitsuaki Nishiyama

Structural reform, restructuring, from last year we have been working on a number of initiatives. First of all, infrastructure, telecommunications systems, telecommunications network related area we will continue to work on that. Staffing, measures have been taken to a quite an extent last year. The shrinkage of this business and production facilities will be consolidated and closed partly a review of our assets as well as hardware shrinkage would lead to software assets being taking impairment. Several billions have been recorded in the first quarter and basically things are moving in line with our plans.

Now in 2015 in the second half there has been a conspicuous IT Hardware storage related to developments, large storage, demand declines have started to be conspicuous so development expenses for that. We will be narrowing down on such development expenses, so storage related products we would revisit our production facilities and we would take rationalization measures and we would narrow down on the products to be developed. We will be quite selective. So those are the things that we are working on but when it comes to these expenses they have already been factored into the initial plan. So overall, we will just move in-line with the plan. Now social infrastructure in industrial systems, in the previous fiscal year projects that incurred losses especially overseas projects that we will not continue, we will withdraw from such businesses. We have already made a decision. So we will shrink our structure if projects are still continuing we will implement such projects and liquidate local subsidiary. Those are the policies that we have already decided on. So we need to first complete the projects that are progressing right now, so that's the work that we are doing now.

So the policy that we have decided before is being maintained. So we're just moving ahead with the structural reforms that we have already decided on and restructuring in a broader sense is a review of law profitability product, we will continue to and continuously work of that in each business unit those will be picked up. The businesses that have challenges and businesses that are low in profitability they will be followed up on a regular basis to check the progress and turnarounds situations will be monitored whether a turnaround is possible at all to make sure that there is going to be higher profitability. We would continue to and regularly check whether such progress is being made.

Unidentified Analyst

On a quantitative basis, first quarter results included within operating numbers. What are the restructuring costs that are included? Any indications on a quantitative basis?

Mitsuaki Nishiyama

First quarter results, restructuring, well 80 billion or so for the full year is something that we shared with you on the May 13th. Right now as of first quarter of this year 10 billion or less. So fixed assets related matters, impairments mostly. So those are the ones that we have worked on mostly because by March-end for special or retirement payments they have already been provided for, so information and social infrastructure yes we have such payments but amounts aren't that large. So fixed assets related, until 2015 domestic business of information and telecommunication systems have been worked upon in conjunction with this right now we are working on overseas information and telecommunication systems to try to consolidate and rationalize.

Unidentified Analyst

Second question, some detailed points. In your plan corporate items and eliminations including risk 3 billion or so have been adjusted negative 3 billion has been factored in but in the first quarter this is a positive number compared to the year before in this corporate items and eliminations other nations. How should I think about this?

Normally I think 5.5 billion would be distributed in respective quarters but in actuality in the first quarter again this is a positive number. So how should I understand this if you could give us your explanation?

Mitsuaki Nishiyama

There's not much to explain and provide my commentary basically revenues and operating income how they generate in the first quarter, it's tends to be smaller and in-line with that the expenses that will be incurred are being planned in line with these developments. For the full year pharmaceuticals 40 billion or so contingency have been factored in in our operating income so that kind of thinking is maintained 3 billion, Hitachi Construction, Hitachi Capital adjustments are being made so that's why we have put in 3 billion in here but original perspective has not been changed. So as we examine each business we may revisit these numbers.

For you year-on-year plus 3 billion and last year it was about the same, the [indiscernible] item is a reduction of corporate expenses. Hitachi Limited headquarters expenses, actuals reductions are reflected here. So in the first quarter such contingencies did not happen. So that's the understanding that you should have.

Unidentified Analyst

Last question, you said that there's not big of an impact by Brexit, the impact of Brexit especially rail related areas. Now that the Sterling is so cheap I would suspect that there could be an impact in the first quarter the business scale is still small so maybe not much of an impact but going forward over three years and five years when your business is larger for Sterling. If it stays at this level what would happen? This is my last question.

Mitsuaki Nishiyama

There's a number of factors here. That would have an influence, the business itself like I said before directly would not be impacted by Brexit because there is order backlog 1400 cards have already been placed in the order and over the next five years 2000 cars [ph] such demand is already expected. So that's not likely to disappear in the procurement side. In the rail business, IEP business in UK production is about 20% and Europe other than UK procurement from Europe other than UK is 50% and the remaining 30% would come from Japan, procurement from Japan. So that's the split and obviously foreign exchange issue or tariff issues unless the tariff arrangements are made there is there is going to be that impact but on the procurement side low core procurement same with other businesses expansion of local procurement is one thing that can be done, if that's not possible then you have to cover that and compensate for that with lower costs.

And those that will be brought from Japan if that still remains we do currency forward contracts partially but basically cost reduction would be the measure to compensate for this. Over the long term in our contract we may need to devise ways to try to pass that on through that and provide for that in the contract but for the projects that we already have there's going to be an impact on procurement side, if the sterling level continues at this level. For the UK Company, when they procure goods the cost increases will be felt at the UK company so cost reductions, currency forward contracts and because the project is long lived. So local production expansion may be another way to respond to these developments

Unidentified Analyst

Normally one would think that -- I understand that the band remains unchanged but the local procurement expansion may not be big enough to compensate for this impact. So if the current level continuous you need to be prepared for losses there and if there is the major fluctuation of foreign exchange if is based on the Sterling, if the Sterling comes down by 20% to 30% cost increases would be suffered. So if such escalation provisions are included in the contract or not, let me confirm that.

Mitsuaki Nishiyama

IEP and other contraband, I am not familiar with the details of the contract itself but for long lived contracts may be such measures needed to be taken.

Unidentified Analyst

Does that mean that you have not made such arrangement so far?

Mitsuaki Nishiyama

The rail, this itself is a very large project. So at the time that we entered into this contract, exchange currency risk, risk hedging has been conducted we entered into currency forward contracts to hedge for that currency fluctuations.

Unidentified Analyst

It may be possible for one year but normally not possible for 3 years and 5 years and when there are such huge fluctuations in the Sterling can you really hedge yourself?

Mitsuaki Nishiyama

We’re doing something that is close to full hedging. So as for tariffs there is the risk there, how to address that is a question but for IEP when it comes to the currency we hedged ourselves for that currency risk.

Unidentified Analyst

I’ve two questions, from April you’ve new organization, it has been four months since you have set up this new organization and in the new organization you have strengthened the so-called front side. And what is happening now? Have you been successful or -- is anything unexpected occurred regarding the organization?

Mitsuaki Nishiyama

According to the original plan, the corporation in the new organization based on demand and IoT Platform, service platform BU, these are working well and all the Bus are actively leveraging the service and platform BU. At the top level [indiscernible] and the business model [indiscernible] as well as the direction and strategy going forward are being fully understood at the top management level. However for the employees overall the rank and file employees and we need further thorough understanding on their part in visiting the customers they have to be able to provide a good explanation on part of consultations as well as for [indiscernible] as well. IoT service platforms must be fully understood, business model must be fully understood and they must be able to deal with customer solutions. We have to provide training to enable this so we need to do a better job in terms of Human Resources Development to enable our employees.

And in fact training programs are under way, post IoT as well as off JT [ph] programs are underway. So once this is up and running we've realized that there significant resources will be required so we have planned to increase the resources that has also been announced and when we came up with a new mid-term management plan we have to change the mentality, the mindset of people. We have to change the way they were introducing products in the past. We have to make further reference to change the mindset of our employees and we are implementing programs to enable this.

Unidentified Analyst

The second question is regarding Lumada, when you made the announcement and the presentation was made in terms of the IoT business 5.4 billion was mentioned you said that it is close to 600 million. Now what is the progress made for this fiscal year, how is the business expanding on the basis of the quarter as well as on the annual basis. Please give us a quantitative guidance or indication in terms of revenues.

Mitsuaki Nishiyama

Related to Lumada does exist but it isn't as if it is making a significant contribution in terms of revenue, we need more time therefore it's very difficult to talk about revenues in terms of all this received so far but the ones we’re able to gain traction I'm sure that we can talk about the revenues as well as profits but in terms of quantitative aspect it's difficult to talk about revenues and profit but what we are trying to identify is KPIs will be mentioned.

On May 10th, Lumada was announced and since then we've had a good response from our customers. The number of inquiries where 130 to-date as of July, out of which I would like to talk about the number of POC where we are conducting proof of concept have gone to the stage there are 80 cases all together.

Even prior to the global launch on May 10th, we have been promoting this product but because we had NDA with the customers we will not -- cannot divulge details but I can say that 80 cases have gone to the POC stage. Another KPI that we would like to introduce is the number of used cases, this is a concept that we would like to set the KPI's for going forward.

From data held by customers analytics AI technology will be brought to them to provide the solutions to change -- improve the management of the customers and [indiscernible] is of what being made abstract, that is what we refer to as the Lumada platform. In terms of this use case currently in fact with [indiscernible] is also included which we had in the past, so anything preceding May 10th is also included but altogether a number of use cases number 160 Pentaho or big data analytics are 100 and Hitachi AI technology 60 in total is 116 so far. So we want to expand this further going forward and grow the related business to this area.

Unidentified Analyst

I’ve three questions, the first question is foreign exchange, you haven't changed your forecast but emerging countries' currencies such as Renminbi, as well as India Rupee, the impact of these currencies over the next three, nine months as you look at the financial results how should I consider these currencies? That's my first question.

Second question, is John Domme stepping down to the extent possible if you could let us know what has happened and third question, Lumada, POC 80 cases. I have heard that the reputation is quite high in terms of the presentation. So these 80 cases what are the types of customers that are you trying to make in-rows into? If there are any certain characteristics of the customers that are showing interest.

Mitsuaki Nishiyama

John Domme, his resignation -- well he is stepping down for his personal reasons. So there is nothing for me to say. I have no further comments. And the structure that would succeed Mr. Domme at Hitachi Data Systems, the CEO is Mr. Otsuki, Managing Director, Executive Officer. He would take on the role of Chief Executive for the Americas as well and Hitachi Insight Platform is being led by Mr. Kojima, Executive Officer and Senior Managing Director. Social Innovation business and IoT business would be succeed by Mr. Kojima. So Mr. Otsuki and Mr. Kojima these are two executive officers and the CEO of Hitachi Consulting, these three people would coordinate Hitachi Insight and HDS, HCC in the United States from the U.S., we will be trying to create a global business. So we have already put together this structure so that is going to be how Mr. Domme will be succeeded and his work taken over.

Unidentified Analyst

Now POC, 80 such cases and what is the content of these cases.

Mitsuaki Nishiyama

The content of the POC itself because of the reasons that I gave I cannot share that with you but if I share with you some of the use cases manufacturing in the industry. The data to be used would be mostly sensing data specifications, maintenance history of the equipment such data would be utilized and the value proposition is shortening of systems development period, reduction of expenses of development, ROI improvements, those are the value propositions. So this is the use case.

Now medical, in our hospital here is another use case. Patients, locations or emergency medical area, location of the patients as for this hospitals that are able to take in these patients, medical data would be used and records would be used for them to be delivered into ER and also to reduce the amount of time needed for treatment, that's another use case and industry related. Another one in the manufacturing production condition for each lot as well as condition of materials would be used to enhance the level of quality of the products. These are some examples of use cases. This also being applied internally in our group.

Service for example warehouse our business efficiency to be increased, excess inventory to be reduced and manufacturing process decision making could be made more efficient. So these are some of the examples of use cases. We want to build on this use cases to create a platform and further lead that to concrete business going forward. And for a number of theses actual POC has already started.

Foreign exchange impact in emerging currencies that's very difficult to say, other region, Asia it's about 10% or so. So emerging countries currency impact this is not something that is coming out this year all of a sudden. Back in 2015 this did have an impact already. In a sense in India, Indonesia, Thailand and Vietnam, in these countries basically it's not that this is an export model, this is locally produced and locally consumed, that's the basis. When we try to convert that to an export base how much local procurement can be done is going to be a very important point and a determining factor. In North America and in Europe, we have a bigger portion over revenues shifting to these regions and Asia is still important but still the arrangement is more how local production and local consumption is possible. So this may not answer your question directly but this is how we are working on this issue. Thank you.

Mitsuaki Nishiyama

And the time has come to bring this meeting to a close. Thank you for attendance today.

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